40 Two Stock Portfolio Part 5

This video explores the concept of portfolio return and variance when extending stock weights beyond 0% and 100%, introducing the possibility of short selling. We demonstrate how short selling allows for negative weights, enabling investors to sell borrowed assets and reinvest the proceeds into other assets, potentially achieving higher returns than individual stocks. However, this strategy significantly increases portfolio variance due to the squared effect of negative weights and overweight positions. We illustrate these effects with graphical representations, showing how short selling expands the efficient frontier, offering higher returns at the cost of substantially increased risk. Visit AxiomTutoring.com and subscribe to @AxiomTutoringCourses.